Audit Report on Compliance with Comptroller’s Directive #7 by the Engineering Audit Office, Department of Sanitation

Audit Report In Brief

We performed an audit of the compliance with the New York City Comptroller’s Directive #7 by the Department of Sanitation’s Engineering Audit Office. Comptroller’s Directive #7 “provides agency Engineering Audit Officers (EAO’s) with guidelines for independently pre-auditing payment requests for a variety of construction and related consultant services contracts.  EAO’s have the important responsibility of insuring, prior to payment, that the City has received appropriate value under these contracts.”

The Department’s engineering audit office—a part of the Bureau of Financial Management and Administration—is responsible for performing independent audits of capital payments for construction projects, design and construction management contracts, equipment purchases, and certain types of expense vouchers.

In Fiscal Year 2007, the Department’s engineering audit office approved for payment $114,733,866 in vouchers for capital projects.

Audit Findings and Conclusions

The audit determined that the Department’s engineering audit office has not fully complied with Comptroller’s Directive #7 provisions regarding change-order work.  We found that the engineering audit office authorized for payment $1,678,491 in vouchers associated with change orders not registered with the Comptroller’s Office.  In addition, the engineering audit office authorized for payment: vouchers that lacked substantiating documentation; vouchers whose amounts exceeded estimated costs; and vouchers whose associated change orders lacked a required certification of cost reasonableness.

In contrast to problems that pertain to change-order payments, the Department’s engineering audit office generally complied with the other major requirements of Comptroller’s Directive #7 that relate to auditing and authorizing the payments concerning work originally specified under the construction and consultant contracts.

Audit Recommendations

This report makes a total of 10 recommendations as follows:

The Department should:

• Cease its practice of authorizing change-order voucher payments for change orders that have not been registered and ensure that all change orders are promptly registered with the Comptroller’s Office.

• Immediately submit for registration the change orders cited in this report that are still not registered.

• Ensure that required documentation to substantiate time and material payments is included in the voucher documentation and reviewed accordingly by the engineering audit office.

• Obtain supporting documentation to properly review the voucher payments noted in this audit, and if required, make any adjustments to the voucher amounts paid to contractors.

• Ensure that the engineering audit office maintains all required file documentation to substantiate voucher payments.

• Ensure that the engineering audit office approves payments that are consistent with authorized change-order amounts.

• Recoup $73,164 in payments to Dart Mechanical Corporation.

• Perform required checks of prices and material quantities and conduct field visits to verify the percentage of work completed.

• Ensure that the engineering audit office complies with Directive #7 provisions for certifying change orders for cost reasonableness.  The engineering audit office should not authorize any payments for which the required certification or cost estimate has not been made.Ensure that the engineering audit office submits to the agency head or the head’s designee the required reports for change orders that exceed the $75,000 threshold.